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Posted: 8/14/2018 4:15 PM EDT

Earnings, Data Temper Continued Turkish Concerns

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U.S. equities were able to rebound from a two-day tumble, fueled by the Turkish economic/currency crisis, getting support from relatively upbeat quarterly results from Dow member Home Depot, Advance Auto Parts and Tapestry, as well as a surprising improvement in small business optimism. Treasury yields ticked higher and the U.S. dollar regained some momentum, following import price data that was in line with forecasts. Meanwhile, crude oil prices were mixed and gold inched higher after a 4-day slide.

The Dow Jones Industrial Average (DJIA) increased 112 points (0.5%) to 25,300, the S&P 500 Index rose 18 points (0.6%) to 2,840, and the Nasdaq Composite was 51 points (0.7%) higher at 7,871. In moderate volume, 657 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil ticked $0.16 lower to $67.04 per barrel and wholesale gasoline gained $0.02 to $2.03 per gallon. Elsewhere, the Bloomberg gold spot price inched $0.87 higher to $1,194.66 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was up 0.3% to 96.72.

Dow member Home Depot Inc. (HD $193) reported Q2 earnings-per-share (EPS) of $3.05, versus the $2.85 FactSet estimate, as revenues grew 8.4% year-over-year (y/y) to $30.5 billion, above the projected $30.0 billion. Q2 same-store sales rose 8.0% y/y, north of the forecasted 6.7% gain. HD raised its full-year guidance for revenue, EPS and same-store sales, but its bottomline outlook was still a bit shy of expectations. Shares traded lower.

Advance Auto Parts Inc. (AAP $156) posted Q2 EPS of $1.59, or $1.97 ex-items, compared to the forecasted $1.86, with revenues rising 2.8% y/y to $2.3 billion, roughly in line with expectations. Q2 same-store sales rose 2.8% y/y, versus the expected 0.1% gain. AAP increased its outlook for revenue and same-store sales. Separately, the company announced a new $600 million share buyback program. Shares were solidly higher.

Tapestry Inc. (TPR $53) announced fiscal Q4 earnings of $0.73 per share, or $0.60 ex-items, compared to the estimated $0.57, as revenues increased 31.0% y/y to $1.5 billion, mostly in line with forecasts. The company formerly known as Coach, issued full-year EPS guidance that came in a bit shy of projections, while its revenue outlook had a midpoint that was slightly above expectations. TPR rallied over 12%.

Small business optimism unexpectedly improves, import price inflation data mixed

The National Federation of Independent Business (NFIB) Small Business Optimism Index for July surprisingly improved to 107.9, from the prior month's unrevised 107.2 level, versus the Bloomberg expectation of a dip to 106.8.

The Import Price Index (chart) came in flat month-over-month (m/m) for July, in line with projections, and following June's upwardly revised 0.1% decrease. Compared to last year, prices were up by 4.8%, above forecasts of a 4.5% increase and compared to the previous month's upwardly revised 4.7% gain.

Treasuries dipped, as the yields on the 2-year and 10-year notes, as well as the 30-year bond, all ticked 1 basis point higher to 2.63%, 2.89% and 3.06%, respectively. The markets continue to grapple with a solid economic/earnings foundation, relatively calm Fed tightening concerns, and the escalated economic/currency crisis in Turkey. Schwab's Chief Fixed Income Strategist, Kathy Jones offers a look at bond investing in her latest article, Are Your Bond Holdings Too Short?.

This sets the stage for tomorrow's fully-loaded economic calendar, which will likely be headlined by the release of July retail sales, forecasted to tick 0.1% higher m/m, after June's 0.5% gain. Excluding autos and gas, sales are forecasted to rise 0.4% on the heels of the prior month's 0.3% increase. The control group, a figure used to calculate GDP, is estimated to rise 0.4% after being flat in June. Also on the docket is the Federal Reserve's industrial production and capacity utilization report, forecasted to show production rose 0.3% m/m during July and utilization crept upward to 78.2%, as well as preliminary nonfarm productivity and unit labor costs for Q2, with economists projecting the former to have risen 2.4% and the latter to indicate a flat reading on a quarter-over-quarter basis. The NAHB Housing Market Index is also set for release, expected to tick lower to a level of 67 for August, while the Empire Manufacturing Index is estimated to have declined to a reading of 20.0 for August, and business inventories and MBA Mortgage Applications will round out the calendar.

Schwab's Chief Investment Strategist Liz Ann Sonders notes in her latest article,Second Hand News: Facing a Second Derivative Economic Inflection Point?, U.S. economic growth is strong; but it’s time to look at the signs we may be facing a "second derivative" change, or inflection point in growth. Liz Ann adds that complacency abounds—about growth, volatility, inflation and trade, while pointing out that when it comes to the relationship between economic fundamentals and stock market behavior, "better or worse matters more than good or bad."

Europe mixed on data and Turkish focus, Asia mostly rebounds but China sags on data

European equities finished mixed, with the euro and British pound declining versus the U.S. dollar, while financials saw some pressure as the focus on the Turkish economic/currency crisis remains. Turkish concerns have pressured the global markets the past two sessions, but a rebound in the Turkish lira appeared to soothe some of the uneasiness. A flood of economic data was digested, headlined by stronger-than-expected Q2 GDP reports out of the Eurozone and Germany. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, discusses the broadest measure of economic output in his article,What Does GDP Mean For The Stock Market?, noting that on a quarter-to-quarter or year-to-year basis during an economic expansion such as the current one, GDP is rarely the best—and certainly isn't the only—measure for investors to use as a proxy for the stock market performance of a country. In other economic news, German investor sentiment came in better than expected for this month, while Eurozone industrial production data was mixed and the U.K. employment change came in below forecasts for June. Bond yields in the region finished mixed.

Stocks in Asia finished mostly higher, rebounding from yesterday's decline that came from the escalated economic/currency turmoil in Turkey, with a reprieve from the drop in the Turkish lira appearing to calm concerns. Japanese equities rallied, with the yen giving back some of a recent gain that came amid the ramped-up uneasiness in the global markets. Markets in South Korea and Australia advanced, and stocks in India increased, with the pause in the U.S. dollar's strength likely lending support, along with late-yesterday's cooler-than-expected read on the nation's consumer price inflation for July. However, securities in mainland China and Hong Kong dropped following a flood of mostly lackluster July economic data. Late-yesterday's softer-than-expected lending statistics was followed by smaller-than-projected increases for China's retail sales, industrial production and fixed asset investment, which seemed to overshadow favorable data on new yuan loans.

Schwab's Jeffrey Kleintop, CFA, notes in his article, 2018 Global Mid-Year Outlook: From Sugar High to High Tariffs?, global economic and earnings growth momentum is slowing, but still growing, while pointing out that how the ongoing trade conflicts develop pose a risk to markets the second half of the year. Jeff concludes that prepared investors should consider rebalancing their portfolios back towards a balance in geography, style, and size after many years have seen trends pushed to historical extremes.

Unlike the U.S., tomorrow's international economic calendar will be fairly sparse and include consumer sentiment in Australia, and CPI and PPI from the U.K.

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